The economic news has been (mostly) brightening as 2023 gets underway, from an improved outlook on inflation to continuing news of historic job development and low unemployment. The general consensus is now that any economic slowdown will be short and shallow, especially when compared to previous downturns.
But what does that mean for real estate investors, developers, and operators who may still be understandably wary of what the external economic outlook holds for our industry? Which assets will offer a safe bet and which will need some more time to stabilize in the current climate?
If we only look at the potential for more unpredictability, we may miss many of the positives that should give cause for optimism. Experts report that we are entering this slowdown from a relative position of strength, with labor markets tight and household and corporate balance sheets in good shape.
What the Past Three Years Have Taught Us
The last few years have transformed how, when, and where we work; challenged supply chains; required companies to rethink sustainability goals; and pushed once niche real estate markets such as data centers and life sciences into the mainstream.
The rise of remote and hybrid work upended the office sector, but signs of life are returning. While office vacancy rates continue to hover around 15%, 90% of employers are requiring workers back in the office at least part time this year — great news for office building owners and operators, as well as for the businesses that are supported by the 9-to-5 crowd. On the flip side, another hot trend has emerged from the ashes of unused office space: repurposing it as apartments and retail, opening up unique opportunities for developers and operators.
As the world transformed, technology took on an even more important role in real estate, with forward-thinking proptech companies disrupting the once staid industry and enhancing accountability, democratizing access, and boosting profitability across the board.
2023: The Future Looks Bright?
One thing is for certain: The future is in flux — but, with careful planning, those fluctuations don’t need to be fearsome. Certain asset classes have remained stable, while others are on the rebound. Savvy investors will take this time to assess their portfolios, potentially diversify, and consider what moves to make in the new year.
So, where are the bright spots as the world wakes up?
With people reimagining such lifestyle choices as housing, healthcare, and commerce, multifamily and industrial assets have performed at peak levels, accounting for the majority of all CRE investment volume. Data centers have hummed along steadily, while demand for life sciences projects is booming.
We are confident that in 2023 the volatility of debt costs will ease, the current phase of price discovery will pass, and more certainty will enter the market as underwriting becomes clearer and the appetite for risk returns. The period of repricing is likely to see some winners and losers, but forced sellers are expected to be limited.
Invest in the Future
Real estate professionals who view this period of uncertainty as a positive — an opportunity to bolster current holdings and even invest more — have historically seen superior rewards once the economy bounces back (and, it should be noted, it always bounces back).
A challenge for commercial real estate is uncertainty over the adjustment’s size, speed, and duration. However, there’s still a significant amount of capital on the sidelines, and property owners and investors will take this as an opportunity, according to JLL’s 2023 economic outlook.
As a platform that connects real estate operators with capital providers, we’re encouraged and excited for the future of the real estate investing outlook and the numerous positive changes and opportunities that have developed as a result of a rapidly transforming industry. Learn more about how we can help you supercharge all of your real estate investing initiatives this year and beyond.